Industry News: Diamler and Volvo Begin Bracing For A Possible Trade War

[William Maley]

The project of a trade war between the U.S. and China (along with the European Union) has many automakers on edge. Some are beginning to speak out about the possible dangers it may bring.

Mercedes-Benz's parent company, Diamler AG announced yesterday that its full-year earnings will be slightly lower than last year. Their reasoning comes down to consumers in China buying fewer SUVs that are imported from the U.S. Most of Mercedes-Benz SUVs are built in Alabama.

“Remember, for those following from a Trump/global free trade perspective, this is now a German car maker, warning on the profits coming from their Alabama-made SUVs, which are then sold/exported into China –- a complicated situation indeed!!” wrote Evercore ISI analyst Arndt Ellinghorst.

According to Bloomberg, shares in Diamler dropped 4.4 percent on this announcement.

Meanwhile, Volvo Cars CEO Hakan Samuelsson said the trade war could affect plans in the U.S. Speaking at the opening of the Swedish automaker's new assembly plant in South Carolina, Samuelsson told Bloomberg that Volvo would have to limit the number of models it sells due to threat of a 25 percent tariff on imported vehicles.

“I would have less models to choose from and they would cost more -- that would be the consequence. Shorter menu and higher prices -- not a very good restaurant,” said Samuelsson.

The factory in South Carolina will provide a small relief for Volvo if tariffs do go into place. Small is the key word as LMC Automotive estimates 87 percent of the vehicles Volvo sells in the U.S. next year will come from other places - Sweden and China.

Samuelsson also warned that the trade dispute could mess up plans to create up to 4,000 new jobs at the new plant.

"If you have trade barriers and restrictions, we cannot create as many jobs as we are planning to," explained Samuelsson.

"We want to export and if suddenly China and Europe have very high barriers, it would be impossible. Then you have to build the cars there. And then all cars will be more expensive, you have to invest more tooling and have every model in every country. That's against all the logic of modern economies that trade with each other."

Source: Bloomberg, (2), Reuters

View full article

[G. David Felt]

Totally agree that the trade war is going to mess up existing plans. In some regards things will get better for all, in others, things are going to hit home like a bomb going off.

Interesting times we live in, very interesting! ?

[riviera74]

It is rather sad that our President is pursuing a policy that benefits few and hurts a lot of people here and abroad.  And all of this is for what exactly?  Since when is protectionism good policy? Since when is autarky good?  I would say NEVER under any circumstances.  Trade wars tend to beget shooting wars, so tread carefully and buy your next car sooner than later.

Of course, the Chinese warned any who would listen: May you live in interesting times.

[ccap41]

I believe the goal is just a level playing field as we pay waaaay more in tariffs that others pay to sell their stuff here. 

[Drew Dowdell]

1 hour ago, ccap41 said:

I believe the goal is just a level playing field as we pay waaaay more in tariffs that others pay to sell their stuff here. 

We don't pay tariffs to other countries for items exported from the US. The customers in those countries pay the tariff.

We pay very few tariffs in this country and the ones we do pay are quite low unless you're trying to buy a truck from Germany...

[ccap41]

21 minutes ago, Drew Dowdell said:

We don't pay tariffs to other countries for items exported from the US. The customers in those countries pay the tariff.

Correct. Consumers absorb the price increase. 

[Suaviloquent]

Hmmm. Well good bye to S90. 25% tariff on A8, S-Class, and 7 Series.

 

the way I see it these luxury products will take a super large hit. Good.

I wonder now. Cadillac will have to stop-sale of the plug-in CT6.

 

And Buick Envision toodle-loooo. What else?

 

oh yes, Mexican made Audis, go to hell pls clearly a profit grab nothing else. Damn all these luxury makes that use cheap labour are really gonna take a hit. I think that’s a good thing. Luxury car should mean expensive overpaid labour all the time. 

[smk4565]

4 hours ago, Suaviloquent said:

Hmmm. Well good bye to S90. 25% tariff on A8, S-Class, and 7 Series.

 

the way I see it these luxury products will take a super large hit. Good.

I wonder now. Cadillac will have to stop-sale of the plug-in CT6.

 

And Buick Envision toodle-loooo. What else?

 

oh yes, Mexican made Audis, go to hell pls clearly a profit grab nothing else. Damn all these luxury makes that use cheap labour are really gonna take a hit. I think that’s a good thing. Luxury car should mean expensive overpaid labour all the time. 

Chevy Silverado quad cab, 25% tariff, Dodge Ram 25% tariff, Buick Encore, Chevy Traxx, Chevy Sonic, Chevy Spark 25% tariff.  Ford Fusion, Lincoln MKZ, Chrysler 300/Dodge Charger/Dodge Challenger 25% tariff.  None of those are made in the USA.  

I bet adding $10,000 to the price of the Silverado and Ram will be good for sales.  Dealership sells less, they lay off workers.

Mercedes C-class, BMW X5, Mercedes GLE: 0% tariff.   Honda Accord/Pilot/Ridgeline, Acura TLX, Toyota Camry/Highlander/Sienna no tariff.  All those are made in the USA.  

This tariff garbage only screws the consumer, and will drop auto sales which in turns screws all auto companies.  This isn't like 1960 when Americans made cars in America, Japanese made cars in Japan, etc.  And if you export tax those BMW and Mercedes going to China, and China taxes them coming in because of a trade war and they sell less in China, then BMW and Mercedes lay off workers in South Carolina and Alabama.  Lets kill some more jobs.

[Drew Dowdell]

All of the GMs and the RAM could move production to the US. The cheap ones will probably just get cancelled.

The ct6 plug in could be built here, they just sell most of them in China.

[balthazar]

General Motors has 4 facilities in Mexico and 40 in the U.S..

Fort Wayne & Flint are online to build the next Silverado/Sierra, and fully 80% of GM pickups sold in the U.S. are built in the U.S..

Edited June 22, 2018 by balthazar

[Suaviloquent]

I dunno about increased costs. For one it simplifies the hell out of product planning.

Yeah you have short turn spike in all the sunk costs associated with developing cars for markets where the crippling tariffs now make them unmarketable.

 

Consumers NEED value but they WANT choice. 

 

I’d say something like this might single handedly force automakers to invest even more in America as it’s the large market. Mexico isn’t large. The cars made there are almost always for export! And Canada, heck I’m Canadian - and we really have gotten a great deal, too good of a deal!

[A Horse With No Name]

On 6/21/2018 at 5:53 PM, Suaviloquent said:

Hmmm. Well good bye to S90. 25% tariff on A8, S-Class, and 7 Series.

 

the way I see it these luxury products will take a super large hit. Good.

I wonder now. Cadillac will have to stop-sale of the plug-in CT6.

 

And Buick Envision toodle-loooo. What else?

 

oh yes, Mexican made Audis, go to hell pls clearly a profit grab nothing else. Damn all these luxury makes that use cheap labour are really gonna take a hit. I think that’s a good thing. Luxury car should mean expensive overpaid labour all the time. 

Not sure if you are being sarcastic but I rather like Audi products. All things considered I probably would buy an Audi over a Cadillac or Lincoln...do not appreciate the administration restricting my choices.

 

On 6/22/2018 at 12:21 AM, balthazar said:

General Motors has 4 facilities in Mexico and 40 in the U.S..

Fort Wayne & Flint are online to build the next Silverado/Sierra, and fully 80% of GM pickups sold in the U.S. are built in the U.S..

There is something subjective I really like about the current crop of GM pickups. Hopefully the continue to do well in the sales department!

 

[smk4565]

On 6/21/2018 at 10:59 PM, Drew Dowdell said:

All of the GMs and the RAM could move production to the US. The cheap ones will probably just get cancelled.

The ct6 plug in could be built here, they just sell most of them in China.

They could move Silverado production to the USA, but that is 250,000 trucks, they would have to retool a factory which costs a lot, and then kill off whatever was being made in that factory.   Look at how it takes 4-5 years of development just to bring a new version of an existing model to market, getting one of these cars companies to build a whole new factory and relocate is like a decade endeavor.

[smk4565]

On 6/22/2018 at 12:37 AM, Suaviloquent said:

I dunno about increased costs. For one it simplifies the hell out of product planning.

Yeah you have short turn spike in all the sunk costs associated with developing cars for markets where the crippling tariffs now make them unmarketable.

 

Consumers NEED value but they WANT choice. 

 

I’d say something like this might single handedly force automakers to invest even more in America as it’s the large market. Mexico isn’t large. The cars made there are almost always for export! And Canada, heck I’m Canadian - and we really have gotten a great deal, too good of a deal!

The American market is the biggest in North America, but in the world it isn't.  China and the EU are larger car markets than the United States.  Audi sales 2 million cars a year, only 200,000 of those are in the USA.   Even GM sells about 4 million cars a year in China and 3 million in the USA.  So if you start these global trade wars, every car maker gets hurt, prices rise everywhere, and the consumer gets stuck with the higher prices.

[Suaviloquent]

It’s like everyone forgot that lots of auto plants closed here and even if auto makers make investments in America it’s just to keep the current plants relevant for the continued production of the next model, not to actually increase capacity for new models.

 

i find it compelelty stupid for example how the Equinox is built in Canada but the XT5 and now Blazer will be built in Mexico, where the value added is much higher for those lower volume products this profit margin per unit much higher.

It’s just dumb that America in the NAFTA market is far and away the biggest buyer and yet proportionally in terms of employment far lower. 

 

[Suaviloquent]

3 minutes ago, smk4565 said:

The American market is the biggest in North America, but in the world it isn't.  China and the EU are larger car markets than the United States.  Audi sales 2 million cars a year, only 200,000 of those are in the USA.   Even GM sells about 4 million cars a year in China and 3 million in the USA.  So if you start these global trade wars, every car maker gets hurt, prices rise everywhere, and the consumer gets stuck with the higher prices.

When talking about Mexico about 80% of the output of every plant there is for U.S. 

 

that’s the problem. I don’t like Mexican VINs nothing to do with the quality of the auto or the people who built it - it’s just that the carmakers pretend it’s the same value added but really they get away with paying lower wages. 

 

If their argument of lower prices for consumers is not credible, it doesn’t matter where the car is built payment periods are becoming dangerously long

In no way am I preaching for UAW either...

[ccap41]

26 minutes ago, Suaviloquent said:

It’s like everyone forgot that lots of auto plants closed here

Yup! There's a MASSIVE Diamler plant about 45 minutes away from me that's been empty for around a decade now. 

[Suaviloquent]

You know what’s really f@#king funny though?

Take for example all these trade war fears...Boeing is going to take HUGE hit in China.

that’s not a trade war issue actually, the mercantilist protecitnist Chinese government basically forced the hand of all major Chinese airlines to buy into their massively delayed, over promised  Comac C919. And that plane could only have been built with the help of American and European firms.

Once that is finished the State-owned Comac will reverse engineer everything and what does America get for short term revenue?

China has a threat to tariffs back the only American exports?! They ARE already looking to screw over Boeing.

and any competitor to Boeing is also competition for Airbus. I can’t believe the WSJ and others would say this is great for Airbus as it’s complete nonsense. 

[G. David Felt]

As the war continues so does the world feel the pain!
https://www.reuters.com/article/us-global-economy/global-factory-growth-slowing-china-u-s-trade-war-biting-idUSKBN1KM3HG